Tokenization: A Potential Pathway for Bitcoin’s Future

Georgii Zvonka
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Georgii Zvonka: University of Lausanne; Swiss Finance Institute

No 23-53, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Tokenization is a process that may cause a transition to new monetary standards in a world of decentralized money. The possibility of tokenization explains why Bitcoin may have a high value today under expectations that the gradual decline in the mining reward will reduce security, as explained by Auer (2019). The paper introduces tokenization as a way to upgrade Bitcoin and discusses how the possibility of tokenization can affect the value of the first cryptocurrency. Tokenization may be deferred because of the balance between the network effect and congestion in the usage of Bitcoin’s blockchain against those for the new monetary standard. As security of Bitcoin declines, this balance shifts in favour of the new monetary standard. The new monetarist model predicts zero price of Bitcoin in the view of declining security and absence of the option for tokenization. Enabling agents to use tokenized version of Bitcoin instead of Bitcoin itself allows for an equilibrium in which the price of Bitcoin increases with time as the new monetary standard is adopted more widely.

Keywords: Bitcoin; tokenization; monetary standards; monetary economics; diffusion processes (search for similar items in EconPapers)
JEL-codes: E42 O33 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2023-06
New Economics Papers: this item is included in nep-mon and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2353

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